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Management consulting is a $250-billion industry. And it’s growing. It’s highly profitable. But it’s about to be disrupted.
More than 700,000 consulting firms provide services across virtually all aspects of business globally, making business consultants are a staple of corporate life. Consultants have become inextricably linked to the success of most large organizations.
Festering underneath consulting offerings, methodologies, tools, and firms lie some vulnerabilities that will eventually unravel the consulting business model. The same kind of dramatic disruption that other industries have experienced.
An industry becomes susceptible to disruption when it becomes entrenched in its longstanding solutions and financial structure. Disruptive innovations provide simpler or more elegant solutions to existing problems, enabled by new technology and often at a lower cost.
Management consulting is not immune to disruption. According to IBISWorld, “the Management Consulting industry is in the mature stage of its life cycle. The industry is characterized by growth in line with the overall economy, an increasing number of industry players, and technological change based on improving efficiency rather than developing entirely new services.”
When competition becomes efficiency versus innovation and new solutions, disruption lies on the horizon.
Five fatal flaws of the consulting industry
Here are five inherent qualities of the management consulting industry that make it susceptible to technology-driven disruption:
- Labor intensive. Most consulting services rely on humans as the fundamental source of research, analysis, recommendations, process definition, process management, and facilitation.
- Billable time-based business model. The fee structure underlying most consulting services is tied to billable hours or days, which encourages lengthy, overstaffed engagements to maximize revenue.
- High margins. The cost of “goods” in consulting refers not to products but to people. The billable rates of junior consultants in most large firms far exceed what they are paid by the firms in which they work.
- Time-bound value. With the increasing pace of change, the moment a research report, competitive analysis, or strategic plan is delivered to a client, its currency and relevance diminishes as new trends and issues.
- Knowledge commoditization. The models, templates, and tools of the consulting trade have historically been kept “secret” by consultants and locked away as intellectual capital. Paradoxically, even with these fundamental flaws, the industry continues to grow.
So why be concerned?
Intersecting trends drive disruption.
Rapidly emerging trends have created a new breed of competitors – even if the industry doesn’t yet view these upstarts as competition. Firms like Domo, Looker, Qlik, Radius, and CBInsights tap into the converging trends shaping the future of business, and the world. By creating solutions, these firms provide a glimpse into the type of automated, scalable data gathering, insights, and decision-making possible through next-generation technology.
The first to feel the detrimental effects of disruption will likely be the large research and advisory firms such as Gartner, Forrester, and IDC. With models that rely on armies of analysts, reports that become outdated immediately, and annual subscription fees, these firms have the most significant vulnerabilities of the larger consulting industry. Just about any consultant or firm that conducts primary or secondary research will see the value of these offerings and clients’ willingness to pay for them diminish.
While many consultants and consulting firms have established practices advising clients on strategies to leverage disruptive trends and technologies, few take their own advice. Investing in the technological innovations and next-generation business models is a fundamentally paradoxical concept in an industry driven by billable hours, billable days, and closely held best practices in the form of “knowledge capital.”
Eat your own dog food.
In 2000, I wrote an article in the first issue of Consulting to Management (C2M) about the importance of creating “knowledge assets” as a strategy to scale professional services offerings. The article described the importance of capturing and codifying intellectual capital in the form of process methodologies, tools, and templates.
Repeatable processes, models and tools are important for efficiency and profitability. The physical delivery of these staples of the trade remains chained to an entrenched business model. A new approach is needed if the industry is to unlock the next phase of its evolution and value.
Many clients hire consultants to tap into strategic thinking – seeing the big picture, identifying scenarios, choosing options, and creating game plans. Yet a conspicuous void exists when it comes to addressing strategic questions by and for the industry itself.
Here is a set of questions that can help jump-start new business models for management consulting:
Transformative problems. What emerging client challenges and needs exist that, if addressed, would transform their business by 10x, or even 100x?
Radical intelligence. How do we leverage big data, artificial intelligence, collaboration tools, and other technologies to create a step-change in the level of knowledge and insight we deliver?
Scalable relevance. How do we scale our tools and methods while ensuring applicability to the widest global audience?
Knowledge democratization. How do we make our models, tools, and resources available while building a sustainable business model?
Collaborative ecosystems. What networks can we build or join that exponentially elevate the value we create and deliver?
In the field of business strategy, the “tyranny of success” is a well-known dynamic: what led to today’s success will ultimately lead to tomorrow’s failure. Those that recognize and understand the limitations of their existing business model while tapping into emerging technologies and new delivery models will have the best chance of succeeding in the disruptive future.
One important thing for consultants to be aware of is the risks they face when working with clients and companies. One small mistake or negligence could lead to financial loss. Getting insurance for consultants is important as well. Find out more about consultant insurance on Bizinsure website.
